The means test was introduced by the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) to prevent high-income filers from using Chapter 7 to avoid paying debts they could afford.
How It Works
The test has two parts. Part 1 compares your current monthly income (averaged over 6 months) to the median income for your state and household size. If you are below the median, you pass -- no further analysis required. This is the case for the majority of Chapter 7 filers.
Part 2 applies only if your income exceeds the median. It subtracts standardized living expenses (using IRS tables), secured debt payments, priority debt payments, and certain other allowable expenses from your income. If the resulting disposable income is below specified thresholds, you pass despite being above the median.
Who Must Take It?
The means test applies to all individual Chapter 7 filers with primarily consumer debts. It does not apply to businesses, to individuals whose debts are primarily business debts, or to disabled veterans whose debts were incurred primarily during active duty or homeland defense.
Common Misconceptions
Many people assume they make too much money for Chapter 7 without actually running the numbers. The means test is more generous than most expect because it deducts actual secured debt payments, health insurance, childcare, and uses IRS expense standards that reflect realistic living costs. It is always worth calculating before assuming you do not qualify.